Cummins Inc. reported record year-end revenue driven by increased sales in North America, but the company offered a conservative forecast for sales growth this year because of weaknesses in overseas markets and the negative impact of a strong U.S. dollar.
The Columbus-based Fortune 200 company on Thursday reported revenue of $19.2 billion in 2014, more than an 11 percent increase from 2013. That total was driven by a 20 percent increase in revenue in North America, the company said. Also, growth in China offset weaker demand in Brazil and India.
Year-end net income of $1.65 billion also increased more than 11 percent, from $1.48 billion in 2013. Earnings before interest and taxes (EBIT) increased from $2.16 billion to $2.5 billion.
Fourth-quarter revenue of nearly $5.1 billion increased almost 11 percent from the same quarter in 2013, Cummins reported. The year-over-year increase was driven by higher revenue in North America, which offset lower demand in Brazil and Europe, the company said.
“We reported record revenues in 2014 despite weak economic conditions in several of our most important international markets,” Cummins Chairman and CEO Tom Linebarger said in a news release.
“Revenues grew 11 percent as demand in on-highway markets in North America improved, we continued executing our distributor acquisition strategy, and we delivered strong growth in China driven by new products. We continued to invest in future growth, reflecting our commitment to technology and product leadership, while growing EBIT faster than sales,” Linebarger said.
Cummins is forecasting full-year revenue growth of 2 to 4 percent for 2015. Demand in North American on-highway markets is expected to improve this year but will be tempered by continued weakness in international markets and the negative impact of a strong U.S. dollar, the company said.
“We are committed to improving the quality of our products and service for our customers, closely managing costs and further improving our financial performance in 2015. The company delivered on its commitment to return 50 percent of cash from operations to shareholders in 2014 and will do so again this year,” Linebarger said.
Cummins increased its dividend by 25 percent last year.
The company began the new year on more of an upbeat revenue note compared with a year ago. Cummins in 2013 was coming off a slight year-end revenue decline of $33 million from 2012 to 2013. North American sales were up 3 percent in 2013, but international sales declined 4 percent. The company conservatively projected sales to increase 4 to 8 percent in 2014, even though it anticipated improved sales of heavy-duty and medium-duty engines among a broad range of market segments in North America.
However, stronger demand in North America prompted Cummins to adjust its revenue forecasts three times, after reporting performances in the first, second and third quarters. After third-quarter revenue of $4.9 billion represented a 15 percent increase from the same time in 2013, Cummins projected 2014 year-end revenue to grow by 10 to 12 percent. That turned out to be accurate.
Cummins employed nearly 600 people at its Seymour Engine Plant and its High Horsepower Tech Center in early 2014.
That’s a number that was expected to continue to rise as the company’s tech center ramps up production of the QSK95 high-speed diesel engine. That engine can be used in locomotives, on mining rigs and for other purposes with power generation needs including data centers and hospitals.
Despite the year-end revenue record, the stock market reacted negatively to Cummins’ forecast for 2015. The company’s stock closed at $138.11 on Thursday, down $6.05 from Wednesday’s close of $144.16, a 4.2 percent difference.
Analysts weren’t surprised by the market’s reaction, saying Cummins’ earnings report offered a mixed bag of news. The company’s strong sales, especially in North America, are a great sign, but currency problems in its international markets hurt right now, they said.
Scott DeDomenic, a senior vice president and analyst with Hilliard Lyons, explained the currency problem this way: If Cummins sells a $10,000 engine in Europe, only $8,000 is coming back in U.S. dollars.
Wall Street was expecting a heartier revenue forecast for 2015, DeDomenic said, which is why the stock price dropped.
However, the fact that the North American sales are strong is good news for Columbus, DeDomenic said, because its plants serve that market.
Something in Cummins’ favor is that the company’s financial management is excellent, said Rich Hummel, director of research for Columbus-based investment adviser Kirr, Marbach & Co. He noted the company’s dividend increase to shareholders and said it wisely repurchased 4.8 million shares of stock.
“They get an A+ from me,” he said.
While the currency problem is a headwind for profits, Craig Kessler, president and chief investment officer of Kessler Investment Group LLC of Columbus, expressed optimism about Cummins’ potential for greater revenue than projected in 2015.
“I’m optimistic that as the international markets improve, Cummins will be there to benefit from that,” he said, noting that the company’s success with emissions controls has it in a good position.
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“We reported record revenues in 2014 despite weak economic conditions in several of our most important international markets. Revenues grew 11 percent as demand in on-highway markets in North America improved, we continued executing our distributor acquisition strategy, and we delivered strong growth in China driven by new products.”
Cummins Chairman and CEO Tom Linebarger
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Thursday close: $138.11
Change from Wednesday: -$6.05
Percentage change: -4.2 percent
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